The test that must be met for OIO consent to be granted differs depending on whether the investment involves significant business assets or sensitive land.
The ‘investor test’
The ‘investor test’ must be met for both sensitive land and significant business assets applications. The investor test criteria are fundamentally the same for all consent applications. The four core investor test criteria are the following:
- Relevant business experience and acumen: the IWC must collectively have business experience and acumen relevant to the overseas investment being made. To meet this test, the applicant provides a description of current and former material roles, business experience and qualifications of each IWC, with a particular focus on experience and qualifications relevant to the same type of industry and investment that is the subject of the application.
- Demonstrated financial commitment to the investment: the applicant must have committed financially to the investment, for example, by engaging advisers, conducting due diligence, negotiating and entering into transaction documents, paying a deposit, and/or having engaged debt financiers to secure, or having entered into, funding commitments.
- ‘Good character’: the IWC must each be of ‘good character’. This involves disclosure of any and all information potentially relevant to the character of the IWC, including offences or contraventions of the law (whether convicted or not), allegations of the same and any investigations, prosecutions or other enforcement action by regulatory or professional bodies. Where any such disclosure is made, an explanation must be provided as to why such matter(s) do not impugn the good character of the relevant individual. Each IWC must give a statutory declaration addressed to the OIO confirming that they are of ‘good character’.
- Absence of ineligible individual(s): the IWCs must not be individual(s) of the kind referred to in section 15 or 16 of the Immigration Act 2009, being a person who, broadly:
- has been sentenced to imprisonment for more than five years or more than 12 months in the previous 10 years;
- has been the subject of a removal order;
- has been removed, deported or excluded from New Zealand or any other country;
- is likely to commit an offence that is punishable by imprisonment;
- is, or is likely to be a threat or risk to security, public order or the public interest; or
- is a member of a terrorist entity designated under the Terrorism Suppression Act 2002 (NZ).
The ‘benefit test’
In the case of investments involving sensitive land, the applicant is additionally required to satisfy a ‘benefit test’.
This test requires that the investment will result in a ‘benefit to New Zealand’. Where the investment involves an interest in non-urban or farm land of more than five hectares, the applicant must show that the benefits to New Zealand will be, or is likely to be, ‘substantial and identifiable’.
The Act and Regulations contain 21 specific ‘benefit factors’ against which the outcomes of the investment are measured, including matters such as introduction of new investment for development purposes, creation of jobs, increases in business productivity or efficiency, introduction of new domestic services or technology, and protection of indigenous flora and fauna.
Benefit claims are required to be measured against a ‘counterfactual’ in respect of which the OIO applies a rebuttable presumption that the relevant assets will be acquired by a hypothetical ‘competent and adequately funded alternative New Zealand purchaser’ (ANZP). The benefit to New Zealand under each factor is therefore required to be measured against the benefit to New Zealand that would arise if an ANZP acquired and owned the relevant assets. For example, if one of the benefits claimed by an applicant is that it will introduce to New Zealand investment for development purposes of NZ$5 million and create 10 jobs over the five-year period following the transaction, the counterfactual may be that an ANZP would invest NZ$3 million and create five jobs over that period, and so the net benefit to New Zealand under these benefit factors would be NZ$2 million and five jobs. This is a notoriously difficult test to apply given its hypothetical nature, and the government has announced that the test will be amended in 2020 (see ‘Reform’ below).
Separate pathways for investments in residential land and forestry rights
Amendments to the Act that were introduced in 2018 brought acquisitions of residential land and forestry rights within the scope of the Act.
Forestry rights were previously not captured by the Act owing to general exclusion for profits à prendre (rights to take), but this exclusion was removed by the amendments. The new rules provide the following:
- The acquisition of forestry rights will not require OIO consent where the total area covered by forestry rights acquired in any calendar year (including acquisitions by related parties) is less than 1,000 hectares.
- Forestry investors can take advantage of two new (and simplified) consent pathways where the land ‘will be or is likely to be used exclusively or nearly exclusively, for forestry activities’ (maintaining, harvesting or establishing a crop of trees) and there is a commitment to replant following harvest, namely:
- a simplified benefit to New Zealand test that can be met by committing to maintain existing arrangements for supply of logs to New Zealand processors and existing environmental protections - the applicant is not required to show any additional benefit resulting directly from the investment; and
- a new counterfactual test that only requires the OIO to compare the proposed forestry use against the current use of the land (and not against what a hypothetical alternate New Zealand purchaser might do).
These tests can be used regardless of the nature of the forestry investment (eg, bare land purchase, purchase of existing forest, lease, forestry right, or investment in a forestry business). If the relevant land includes any existing homes on residential titles, those homes can either be retained for staff accommodation or removed for the purposes of the forestry business.
Residential land was also not previously within the scope of the Act; however, the current government made election promises when it came to power in 2016 to ‘ban’ foreign investment in residential property and has implemented that policy through amendments to the Act rather than by introducing new legislation.
As a result of the changes, any overseas person who wishes to buy residential or lifestyle land (of any size), or lease it for three years or more, will in almost all cases need to apply to the OIO for consent.
To obtain OIO consent to acquire residential land, the overseas person will generally need to show that:
- they will be developing the land and adding to New Zealand’s housing supply (eg, new apartments);
- they will convert the land to another use (eg, a business) and are able to demonstrate this would have wider benefits to New Zealand;
- they have an appropriate visa status and intend to reside in the property being purchased (the ‘commitment to reside’ test); and/or
- the residential land is being used for a purpose associated with or incidental to a business (eg, worker accommodation) (the ‘incidental use’ test).
Applicants for OIO consent can apply using a combination of the available tests, depending on their intentions for various parts of the land. Generally, an overseas person will not be able to purchase residential land for the purpose of holding it as an investment property.
Onus of proof
The onus is on the applicant to establish that the relevant tests are satisfied so that consent should be granted. Benefit claims are required to be evidentially substantiated and quantified, and require a level of analysis on the part of the applicant that is sufficient to convince the OIO both as to the likelihood that the benefit will occur and the quantum of that benefit as against the counterfactual. Sometimes these are backed up by third-party reports or opinions.
There is a significant amount of technical guidance on how to make benefit claims and counterfactual arguments on the OIO’s website, www.linz.govt.nz/overseas-investment.
Engaging a New Zealand legal practitioner with specific expertise in preparing OIO applications is critical to both a smooth process and a successful outcome.
Various aspects of the substantive tests will be reformed by amendments to the Act in 2020. These changes include:
- replacing the 21 ‘benefit factors’ with fewer, broader factors that encompass the range of benefits that can currently be recognised - it is unclear what impact this change will have other than streamlining the application form;
- removing the narrow requirement for benefits in non-urban land over five hectares to be ‘substantial and identifiable’, and replacing it with a proportionate approach where the benefits to obtain an interest in any sensitive land must be proportional to the land’s sensitivity and the interest being acquired in it - this is a welcome change and will introduce into the legislation a proportionality requirement that the government has directed the OIO to apply but which some would argue has not always been consistently or appropriately applied;
- removing the theoretical counterfactual test, by requiring that benefits claimed be measured against the current state of the sensitive land and any business carried on from it - this is also a welcome change that will significantly simplify the analysis required in relation to the benefits test, and should eliminate some anomalies that arise under the current hypothetical ANZP counterfactual approach; and
- replacing the ‘good character’ test with a bright line test under which the decision maker may only take into account criminal convictions with prison terms, civil contraventions punished by pecuniary penalties and allegations of the same level of offending or contravention where formal proceedings have commenced - this change should significantly ameliorate the delays, financial cost and uncertainty associated with the current test and approach (which has been highly problematic for both the applicants and the OIO to deal with).
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